Drug Dumping or Charity??

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Drug dumping occurs when large amounts of unwanted and unusable pharmaceutical products are sent from developed countries to areas of crisis. This usually occurs after a humanitarian disaster such as an earthquake, flood or war.

Sometimes the drugs come from individuals emptying their first aid cabinet which are then distributed by well meaning charities. An impulse that is understandable but not very helpful if you are on the receiving end. But more often large scale drug dumping comes from donations made to charities from pharmaceutical companies.

There are many reasons why drugs companies may choose to act in this way. Sometimes a product may not be selling well, perhaps they need to clear their shelves of unwanted stock, perhaps a product is nearing the end of its shelf life. Donating these drugs means that the companies do not have to undergo the costly business of disposal.

It also can mean that, in the case of the United States, they may qualify for a deduction in their tax bill.

 

US tax laws

In the US the tax law states that if you donate a product for the sick, the needy or for humanitarian purposes then you can claim a maximum of twice the ‘cost basis’ of the product to claim against tax which is called an ‘enhanced deduction’. ‘Cost basis’ includes the component materials, labour costs, accounting costs and warehousing costs.

 

Many organisations working in this field have expressed concern at this law suggesting that it provides an incentive for bad donations. The law doesn’t just cover pharmaceutical products although it is these that cause the most problems

 

The law also allows the same deductions for any product which may explain why we found instances of large donations of bikinis to Gujarat after the earthquake last year, or a consignment of Double D cup bras to Kobi in Japan after the earthquake.

There is another deduction in the US tax system which is called a ‘bargain sale’ and it occurs when a product is sold to a charity at below its normal retail value. If it is for the needy, sick or for humanitarian purposes then this deduction works in conjunction with the ‘enhanced deduction’ mentioned above which in some cases can actually push the donor company into profit.

 

 

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